S.E.C. v. PRINCETON ECONOMIC INTERN. LTD.

152 F. Supp.2d 456 (2001) | Cited 0 times | S.D. New York | July 17, 2001

OPINION & ORDER

This Opinion and Order serves to supplement my prior oral findings andorder of July 6, 2001 that the previously-imposed confinement of MartinA. Armstrong in the Metropolitan Correctional Center on an order of civilcontempt still serves coercive purposes; it might yet yield its intendedresult and should therefore be continued in order to coerce compliancewith this Court's Contempt Order of August 25, 2000. The estimated valueof the missing corporate assets, as documented by the TemporaryReceiver,1 is approximately $14.9 million and Armstrong has comeforward with not a scintilla of evidence to suggest good faith efforts tocomply with the Contempt Order, or that he is either unable to comply orthat the contempt has lost all of its coercive effect.

I reached this conclusion at the hearing on July 6, 2001 and, uponreceipt of opposition papers from Armstrong's CJA counsel, I reexaminedthe issue and remain of the opinion, based on my "individualizedassessment" of Armstrong and the circumstances of the contempt, see In ReGrand Jury Subpoena (John Doe), 150 F.3d 170, 172 (2d Cir. 1998), thatthere is a "realistic possibility" that extending the term of Armstrong'sconfinement will eventually compel compliance with the Contempt Order.See Simkin v. United States, 715 F.2d 34, 37 (2d Cir. 1983); UnitedStates v. Salerno, 632 F. Supp. 529, 531 (S.D.N.Y. 1986) (citing In theMatter of Milton Parrish, 782 F.2d 325 (2d Cir. 1986)). The authority forsuch continuation is derived from the District Court's general andinherent equitable powers to coerce compliance with its lawful orders.2See Chambers v. NASCO, be., 501 U.S. 32, 44, 111 S.Ct. 2123, 115 L.Ed.2d 27(1991); Shillitani v. United States, 384 U.S. 364, 86 S.Ct. 1531, 16L.Ed.2d 622 (1966); Sigety v. Abrams, 632 F.2d 969, 976 (2d Cir. 1980).

The burden is on Armstrong to prove impossibility of compliance or thatconfinement has become punitive and not coercive. See In re Marc Rich &Co., A.G., 736 F.2d 864, 866 (2d Cir. 1984); Simkin, 715 F.2d at 36-37.Armstrong has net produced the missing black Compaq computer (ContemptOrder, ¶ 1(1)), the missing gray Dell computer hard drive (ContemptOrder, ¶ 1(2)) or any additional corporate assets since January14, 2000, all of which are specifically identified in the Contempt Orderof August 25, 2000.3 Further, Armstrong has communicated noinformation whatsoever about the present disposition of those items tothe Temporary Receiver, despite no fewer than fourteen letters from April2000 through June 2001 from the Temporary Receiver to Armstrongpersonally and his attorneys; all of this correspondence, the latest ofwhich, representative thereof, is attached hereto as Appendix A, offersthe Receiver's assistance in retrieving items identified in the ContemptOrder and purging Armstrong's contempt. Nevertheless, Armstrong has notcome forward with any evidence regarding the whereabouts, much lessproduced, the 102 gold bars (Contempt Order, ¶ IV(2)), the 699 goldbullion coins (Contempt Order, ¶ IV(1)), the ancient coins purchasedpre-September 1998 (Contempt Order, ¶ IV(4)) and the $750,000 bust ofJulius Caesar (Contempt Order, ¶ IV(3)), all detailed, again, inthis Court's Contempt Order at pages 9-18 and, once more, in thedeclaration of Tancred V. Schiavoni, Esq., Special Counsel to theTemporary Receiver, executed on July 6, 2001, at ¶¶ 2-3, 6-12.

The burden of producing such evidence is on Armstrong. "It iswell-settled that if a court finds that a defendant could at some time inthe past have complied with a court order, the court should presume apresent ability to comply . . . ." See Thom, 760 F.2d at 739-740 (quotingUnited States v. Rylander, 460 U.S. 752, 757, 103 S.Ct. 1548, 75 L.Ed.2d521 (1983)). The record is clear that Armstrong remains in possession,custody and control of the corporate assets identified in the ContemptOrder and, most recently reidentified in the Stamoulis and SchiavoniDeclarations. For example, Armstrong testified at the contempt hearing onJanuary 14, 2000 that he took the gold bars from the office at CarnegieCenter in 1998, brought them home and subsequently gave them to AkiraSetogawa after Setogawa showed up in a limousine at Armstrong's home.However, the limousine driver, Michael Faulkner, whom Armstrong testifiedat the contempt hearing witnessed Setogawa take the missing gold bars,denied during a deposition that he ever saw Armstrong give any gold orgold bars to Setogawa. The Temporary Receiver also submitted a signed4transcript of the examination of Nigel Kirwan, in a proceeding to whichthe Receiver was not party, on which Armstrong relies to support hisassertion that Kirwan is holding the assets in trust and Armstrong has nocontrol over Kirman. Armstrong's counsel argued:

And if I could, your Honor, the only thing is to comment on the Kirwan deposition, which [is] one of the documents of the receiver relies upon — part of the deposition that the receiver cites is that part that talks about the assets being held in trust, that Kirwan's holding certain assets in trust, in Australia, and I don't see, even if Mr. Armstrong is released, he's not traveling to Australia to recover those assets and I don't think that Mr. Kirwan would follow any particular order of Mr. Armstrong to release those assets even if he had the power to ask him to do so.

(Tr. at 30.) Kirwan's answers in this deposition, however, are some ofthe strangest, most unbelievable, statements this Court has everencountered. Kirwan claims to be the trustee of two trusts with the samename. (Kirwan Dep. at 89., attached as Ex.18 to Schiavoni Decl.) Hetestified that one trust has a bank account in Switzerland, (Kirwan Dep.at 91), but he does not know the name of the bank (id.) and does not haveany documents in Australia that show the identity of the bank (Id.)despite his position as trustee. If such statements were not enough towarrant dismissal of Kirwan's assertions in this examination, I observethat Kirwan never acknowledges actually having the assets anywhere in thetranscript.

Put simply, there is no new evidence before me. Armstrong has providedme, but mostly the Court of Appeals, nothing but self-serving andconclusory statements that he does not have possession, custody orcontrol over the assets sought by the Temporary Receiver, but has comeforward with no hard evidence to substantiate this assertion. SeeRylander; 460 U.S. at 757-758, 103 S.Ct. 1548 (holding defendant does notmeet burden of production with an ex parte affidavit denying ability tocomply). Thus, he has not satisfied his burden of production.

Armstrong's remaining assertion is that he cannot comply, and cannot beordered to comply, with the Contempt Order because he is under indictmentin a parallel criminal proceeding. Armstrong argues that, even assuminghe had possession, custody or control of the missing corporate assets,compliance with the Contempt Order violates his Fifth Amendmentprivilege. This assertion must be disregarded on two grounds. First,Armstrong has undeniably waived his Fifth Amendment privilege. He did soon January 14, 2000 at the Contempt Hearing when he testified regardingthe factual circumstances surrounding the gold bars, the coins,antiquities and bust of Julius Ceasar and, moreover, that he no longerhad possession of these items — all testimony I did not credit.Regardless of my credibilitydetermination on these issues, had he wished to remain silent for fear ofself-incrimination at that time, he could have done so by asserting theFifth Amendment. His failure to do so operates as a waiver of theprivilege.5 Second, Armstrong's mountain of papers do not support anyassertion of the Fifth Amendment. His current position, documented in anaffidavit attached to his counsel's papers of July 11, 2001, is that hedoes not have possession, custody or control of the missing corporateassets. If this is the case, the Fifth Amendment cannot be asserted ingood faith. In my effort to truly make an "individualized determination"about the Contemnor and the circumstances surrounding his contempt. Ihave reviewed the submissions and proceedings in the Second Circuit. Eventhe Court of Appeals expressed disbelief regarding his Fifth Amendmentclaim.6 The following was the colloquy on the issue when the Circuitreviewed the Contempt Order:

The Court:7

How does the Fifth Amendment issue arise — um, if, um, if Mr. Armstrong's position is that he doesn't have it? If he doesn't have any of these things, well, isn't it idle to talk about whether hypothetically it would be a violation of his Fifth Amendment rights to turn them over? To assert a Fifth Amendment right, wouldn't Mr. Armstrong have to say, "I have it" and "I won't give it to you because of my Fifth Amendment right?"

SEC:

Well, arguably, he has testified that he has had the assets and that he had given them to somebody else, an argument that the District Court does not, um, believe.

The Court:

I just find it strange. I mean, I find the assertion of the Fifth Amendment rather strange because usually one says I have something in my head or I have something in my possession that I will not turn over and that is why I'm asserting the Fifth Amendment because there is that possibility of incrimination. Here, his position is entirely different. His position is I don't have any of this stuff. I couldn't turn it over if I wanted to. So I'm not sure I know why the Fifth Amendment issue is really live here.

Against this background, I am not persuaded by Armstrong's assertion thathis confinement for contempt may not continue based on a valid assertionof the Fifth Amendment.

Armstrong has produced no evidence.8 What he has produced,however, is paper. Armstrong has, to date, filed no fewer than fifteen"emergency" motions in the Court of Appeals, including, it appears, twopetitions for rehearing en banc, and, most recently, a petition forcertiorari inthe Supreme Court.9 Although I will address the content of some ofthese papers which were put before me by Armstrong's CJA counsel, I doobserve that this mountain of paper "[s]uggests the opposite of what, Isuspect, was its intended effect." Quantum Corp., 2001 WL 637387, at *2."It demonstrates that [the contemnor] is beginning to feel the fullcoercive effects of his incarceration for civil contempt. Colloquially,he wants `out.'" Id.

Turning to the specifics of Armstrong's submissions, his counselcontends that there is no realistic possibility of compliance based on anrecent affidavit submitted to the Court of Appeals seeking a writ ofmandamus to prevent a previously scheduled, and later cancelled,deposition of Armstrong by the Temporary Receiver. Armstrong's affidavitstates:

Fifthly, and perhaps of the most importance, is the firm unshakable belief that I have that the proceedings in this Court are solely designed to curb and destroy my civil rights. And, their intent is solely to create pretrial incarceration to extort, through physical and psychological pressure, cruel and unusual punishment prior to any adjudication, in a vain to attempt to extort, by brute force, a guilty plea in the criminal case. I would sooner waive my right to life than compromise my integrity. I shall not submit — ever — to the demands of this Court as I view them as un-American and perfect examples of how the terms "justice" and "liberty" have become hollow words.10

(Armstrong Dep. at 3, attached as Ex. D to Kleinman Decl. and Mem. of Lawin Support of Contemnor's Objection to Continued Incarceration. datedJuly 11, 2001.) Armstrong's counsel contends that these words"[e]stablish the impossibility of Mr. Armstrong's compliance with thisorder to turn over." (Tr. at 28.) As a threshold matter, "The Court neednot accept a contemnor's assertions of unwaivering recalcitrance at facevalue." Salerno, 632 F. Supp. at 531 (quoting Parrish, 782 F.2d at 327).Indeed, "[e]ven if the judge concludes that it is the contemnor's presentintention never to [comply], that conclusion does not preclude thepossibility that continued confinement will cause the [contemnor] tochange his mind." In re Grand Jury Proceedings, 2001 WL 527401, at *1(E.D.N.Y. April 27, 2001) (quoting Simkin, 715 F.2d at 37) (internalmarks omitted). The discretion in deciding whether further incarcerationmay have coercive effect is unusually broad.11 See Simkin, 715 F.2dat 38.

As Armstrong's protestations and rhetoric become more vituperative withrespect to the motivations of this Court, the Temporary Receiver, theSEC, the CFTC and the U.S. Attorney's Office, I am persuaded that he isjust now starting to feel some effects of his continued confinement,especially since his appeal of the Contempt Order failed. Further, hisvarious other attempts at undermining the Contempt Order by pursuingextraordinary forms of appellate relief, which have in some respectsprovided him with hope of release and thereby reduced the coercive effectof incarceration, have fallen short. It is only now that, with theexception of a few petitions that remain sub judice, the appellateremedies have yielded no success that he will feel the requisite degreeof coercion and understand that the only way out of his civil confinementis compliance with this Court's Contempt Order.

Finally, I observe that while it is a matter of discretion to continueArmstrong's contempt indefinitely — which I am exercising herebased on the record before roe — I am aware that his civilconfinement cannot last forever. See Thom, 760 F.2d at 740 (quotingMaggio v. Zeitz, 333 U.S. 56, 76, 68 S.Ct. 401, 92 L.Ed. 476 (1948)).However, the landscape of case-law addressing this issue reveals thatArmstrong's confinement has not yet approached an inappropriateduration, especially given the enormous value of the missing assets andmy finding that his detention remains coercive and not punitive. SeeThom, 760 F.2d at 740 (considering dollar value of missing assets andcontemnor's character); CFTC v. Wellington Precious Metals, Inc.,950 F.2d 1525, 1531 (11th Cir. 1992) (evaluating contemnor's 22 months ofdetention at time of decision and holding that civil confinement maycontinue for "many months or perhaps even several years"); Hankins v.Civiletti, 614 F.2d 953, 954-955 (5th Cir. 1980) (upholding civilconfinement for approximately three years at time of decision wherecontemnor claimed he lacked possession, custody or control and arguedthat privilege against self-incrimination spared him production ofcertain records). In this regard, it is appropriate to note that one incivil contempt keeps the key to his cell in his own pocket at all times.

The foregoing constitute the Court's findings of fact and conclusionsof law.

Accordingly, Armstrong's confinement in the Metropolitan CorrectionalCenter on an order of civil contempt will continue with this Courtevaluating from time to time, on its own initiative or application fromany party to the above-captioned actions, whether release is warranted.

APPFNDIX A

O ____________________ O'MELVENY & MYERS LLP

LOS ANGELES Citigroup Center WASHINGTON, D.C. CENTURY CITY 153 East 53rd Street HONG KONG IRVINE New York, New York 10022-4611 LONDON

NEWPORT BEACH TELEPHONE (212) 326-2000 SHANGHAI SAN FRANCISCO FACSIMILE (212) 326-1061 TOKYO TYSONS CORNER INTERNET: www.omm.com

June 15, 2001 OUR FILE NUMBER 684.617.001

WRITERS DIRECT DIALBernard V. Kleinman, Esq. 212-326-223000 Westchester AvenueSuite 207 WRITERS E-MAIL ADDRESSPurchase, N.Y. 10577-2523 tschi@omm.com

Re: Princeton Economic Institute

Dear Mr. Kleinman:

I reviewed a package of papers from Mr. Armstrong that generally bearthe date April 12. 2001. He appears to have mailed some or all of thesepapers to the Supreme Court. Once again, Mr. Armstrong has gone to greatlengths not to attach the Contempt Orders that were issued in August2000. As you know, these Orders set out in great detail what Mr.Armstrong needs to do to comply. The Orders identify the assets that hehas refused to turn over. The Orders also set out in great detail thebasis for the contempt findings. Mr. Armstrong does not attach theseOrders to his "appendix." Nor does he draw the Court's attention to anyof the provisions of these Orders. Rather, Mr. Armstrong simply attachesthe one page handwritten Order that was handed to the Marshals on January14. He then suggests that this is the only Order that has been issuedconcerning his contempt and argues that this Order is ambiguous. All ofthis only suggests that Mr. Armstrong wants to divert attention from hisactions and the assets that he continues to withhold. After all, he hasoffered no explanation for why he has failed to turn over these assets.Otherwise, someone in Mr. Armstrong's situation would have long agooffered an explanation for the missing items. Certainly, this is how alawyer would deal with this issue.

We have previously written Mr. Armstrong to express our concern aboutthese types of intentionally misleading pleadings. This sort ofsubmission is frivolous and wasteful, Even worse, this is all a tremulouswaste of time for Mr. Armstrong. Please convey these points to Mr.Armstrong.

We stand ready to provide any reasonable assistance that Mr. Armstrongmay need to comply with the District Court's turn over Orders. We haveoffered to meet with Mr. Armstrong. We have also offered to consider anyexplanation he may have for his non-compliance. In response, Mr.Armstrong has refused our offer of assistance and declined to meet withus.

O'MELVENY & MYERS LLPBernard V. Kleinman, Esq., June 15, 2001 — Page 2

Very truly yours, ____________________ Tancred V. Schiavoni for O'MELVENY & MYERS LLP

cc: Martin ArmstrongN.Y. 1:812179.1

1. Judge Kaplan of this Court, sitting in Part I, appointed Alan M.Cohen, Esq. as Temporary Receiver on September 13, 1999.

2. Relying on 28 U.S.C. § 1826, both Armstrong's pro sesubmissions and those of his CJA counsel, suggest that 18 months is theouter limit on Armstrong's period of civil confinement. The "RecalcitrantWitness" statute is inapplicable to this matter because § 1826"[s]ets a maximum limit of 18 months incarceration for witnesses found incivil contempt of court," usually pertains to grand jury proceedings, anddoes not because of the ipse dixit of counsel apply to one under courtorder to produce missing corporate assets, especially since § 1826 isnot cited anywhere in the Contempt Order. See Sigety, 632 F.2d at 976(emphasis added); see also Dole Fresh Fruit Co. v. United Banana Co.,Inc., 821 F.2d 106. 110 (2d Cir. 1987) (noting distinction between §1826 and general contempt power to coerce compliance with court orderedequitable relief); United States ex rel Tom v. Jenkins, 760 F.2d 736,737-740 (7th Cir. 1985) (upholding continued confinement for civilcontempt "until such further order of the court" for failure to payjudgment where district judge had concluded that contemnor failed toproduce evidence that he had become unable to pay); National Gas PipelineCo. of America v. Fritz, 853 F. Supp. 236, 237 (S.D.Tex 1994) (readingeighteen month period of confinement in § 1826 as applicable only togrand jury proceedings); Quantum Corp. Funding, Ltd. v. Assist You HomeHealth Care Servs. of Virginia, L.L.C., 2001 WL 637387, at *13 (S.D.N.Y.June 8, 2001) (continuing indeterminate period of civil confinement tocoerce compliance with preliminary injunction pursuant to generalcontempt power). I reiterate, as I did on page 26 of my findings of factand conclusions of law dated August 25, 2000 (the written ContemptOrder), that Armstrong's contempt is not based on § 1826, but on theinherent authority of all courts to coerce compliance with lawfulorders. Although I did reference eighteen months at the hearing, this wasunintentional and, if anything, has de facto provided Armstrong with anopportunity to be heard regarding his contempt. Had I not erroneouslyuttered the words "eighteen months," the hearing of July 6, 2001 wouldlikely have occurred only on an application from Armstrong producing someprima facie evidence of good faith efforts to comply, impossibility ofcompliance, etc., and tending to suggest that a hearing was warranted.Thus, Armstrong has not been prejudiced by any confusion. I observefurther that the Second Circuit seemed quite clear in its summary orderdated March 27, 2001 (00-6076, 00-6156) dismissing Armstrong's appeal forlack of jurisdiction that the civil contempt order was premised on theCourt's general power.

3. This Court entered "turn-over" orders dated September 13, 1999 (theTRO signed by Judge Kaplan sitting in Part I) and on January 7,2000.

4. The transcript of the Kirwan deposition first appeared before mewithout a signature bearing authenticity. Subsequently, the Receiverfiled a signed copy.

5. See generally Garner v. United States, 424 U.S. 648, 654, 96 S.Ct.1178, 47 L.Ed.2d 370 (1976); Minnesota v. Murphy, 465 U.S. 420, 426, 104S.Ct. 1136, 79 L.Ed.2d 409 (1984); United States v. Monia, 317 U.S. 424,427, 63 S.Ct. 409, 87 L.Ed. 376 (1943); United States v. Matos,990 F. Supp. 141, 144-145 (E.D.N.Y. 1998).

6. The Second Circuit's discussion of the Fifth Amendment issue atoral argument obviously was not integral to its decision to dismiss theappeal for lack of jurisdiction, but arose in the context of a discussionof whether to construe Armstrong's appeal as a petition for a writ ofmandamus.

7. Armstrong's appeal was before Chief Judge Walker, Judge Jacobs andJudge Calabresi. Judge Jacobs asked the questions excerpted here.

8. Armstrong's counsel acknowledged as much during argument before theCourt of Appeals. Chief Judge Walker questioned Armstrong's counselregarding proof that he gave assets to Kirwan. Armstrong's counselstated, He's been unable to produce and direct proof." Judge Jacobsinquired about what evidence Armstrong had to back up his claims aboutthe missing gold bars he purportedly gave to Setogawa. Counsel replied,"He has been unable to produce any documentation that he turned over goldbars to Mr. Setogawa. And, uh, I have nothing else to tell the Court. IfI had those documents, believe me, I would be more than happy to providethem not only to the Receiver, but Judge Owen and this Court."

9. In a mandate and order from the Court of Appeals dated February15, 2001, the Second Circuit, in addition to summarily denying thePetition, stated, "[p]etitioner is warned that the filing of futurefrivolous mandamus petitions may result in sanctions. For a more completediscussion of Armstrong's numerous appeals, see this Court's Memorandumand Order dated March 9. 2001, SEC v. Princeton Econ. Int'l. Ltd., 2001WL 237376 (S.D.N.Y. March 9. 2001).

10. I observe that this affidavit was not even originally put beforeme; it was submitted to the Second Circuit in connection with anapplication for a writ of mandamus.

11. In this regard, I note that the Court may rely on its priorobservations of the contemnor and need not hold a new factual hearing.See Simkin, 715 F.2d at 38 & n. 3.

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